Real Estate and Economic News From Around The Nation

Home loan finance giant Freddie Mac said it lost just short of a billion dollars last quarter, though it did not ask taxpayers for more aid as the loss stemmed from interest payments to the government. The second-largest U.S. residential home loans funds provider reported net loss attributable to common shareholders of $929 million in the first quarter, including a $1.6 billion payment to the government. Without that interest payment, Freddie Mac earned about $676 million in the first three months of the year. That’s the first three month period since the second quarter of 2009 that the firm reported positive net income, excluding the interest payment, and stems from higher quality loans made in recent years. The first-quarter loss, including the interest payment, represents about $0.29 per share. Freddie Mac and its sister firm Fannie Mae have taken more than $150 billion in taxpayer aid since they were seized by the government in late 2008. Interest repayments to Treasury from the two firms have reduced their net taxpayer assistance to slightly more than $134 billion. Freddie Mac said those interest payments would increasingly drive any need for future taxpayer assistance. Asked if the government should rethink its requirement that it should have to pay 10 percent interest on its government aid, Freddie Mac chief financial officer Ross Kari told Reuters it is the cost of doing business. “What we think doesn’t matter,” Kari said. The firms are effectively controlled by the Federal Housing Finance Agency. Source: Reuters

Lender Processing Services’ “first look” report found that the national monthly and yearly delinquency rates continued to decline in March. Out of a database of nearly 40 million home loans, the national loan delinquency rate fell to 7.8%. These are loans that are 30 or more days past due, but not in foreclosure. The month-to-month rate decreased by 11.6%, while the yearly change was also down 19.4%. LPS said there are over 4.1 million properties that are delinquent by 30 days, while there are a little less than two million properties delinquent by 90 or more days. In the report, foreclosure inventory increased by 4.2% in March, which is 1.4% higher than February. The year-to-year inventory went up by 11%. There are approximately 2.2 million properties that currently comprise the foreclosure pre-sale inventory. Source: National Mortgage News

Thousands of jobs in real estate finance have been wiped out as a result of rising rates — with brokers taking the biggest hit. But recently falling rates raise the prospect of elevated refinance demand. And since big employers who have been busy reducing headcount might not be in any rush to staff up again — brokers and small lenders might be in a good position to seize the opportunity. In March, there were 244,900 people employed in the home loan lending industry, according to data released by the Bureau of Labor Statistics. Headcount in the sector fell from 247,700 jobs during February. A year earlier, that total stood at 264,000. Source: MortgageDaily.com

Freddie Mac released the results of its first quarter refinance analysis showing homeowners who refinance continue to strengthen their fiscal house. In the first quarter of 2011, 3-out-of-4 homeowners who refinanced their first-lien home loan either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table. Fifty-four percent maintained about the same loan amount, the highest share since 1985, when Freddie Mac began keeping records on refinancing patterns. In addition, 21 percent of refinancing homeowners reduced their principal balance. “Cash-out” borrowers, those that increased their loan balance by at least five percent, represented 25 percent of all refinance loans; the average cash-out share over the past 25 years was 62 percent. The net dollars of home equity converted to cash as part of a refinance, adjusted for inflation, was at the lowest level in 15 years (third quarter of 1996). In the first quarter, an estimated $6.0 billion in net home equity was cashed out during the refinance of conventional prime-credit home loans, down from $9.1 billion in the fourth quarter and substantially less than during the peak cash-out refinance volume of $83.7 billion during the second quarter of 2006. Source: Freddie Mac

Compared to others who fall behind on home loan payments, a FICO study finds that strategic defaulters have higher scores, use more prudently and apply for new prior to defaulting. While lenders have used the extent of home price depreciation to predict strategic defaults, the new research broadens the profile of such borrowers. FICO expects to unveil new tools to help lenders with early detection of strategic defaulters; CoreLogic and other firms have rolled out similar technologies. Source: USA Today

The Mortgage Bankers Association has released a study on the effectiveness of pre-purchase and post-purchase counseling and education. Although participants in such programs may be more likely to pay home loans on time or may be more likely to have their loans modified, MBA’s Michael Fratantoni said there still is no evidence of the effectiveness of the programs or which counseling strategies might work best. “Future studies should adhere to more rigorous research designs, so that the results can be confidently generalized to inform policy regarding these programs,” he said. Source: RIS Media

Consumer News

Applications for U.S. home loans surged in early May at the fastest pace in two months as rates dropped steadily during the month of April, an industry group said. The Mortgage Bankers Association said its seasonally adjusted index of home loan application activity, which includes both refinancing and home purchase demand, jumped 8.2 percent in the week ended May 6. “Rates dropped again last week as the Federal Reserve continued its asset purchase program,” Michael Fratantoni, MBA’s vice president of research, said in a statement. “Over this four-week span, the refinance index has increased by about 18 percent. The MBA’s seasonally adjusted index of refinancing applications surged 9 percent, while the gauge of loan requests for home purchases climbed 6.7 percent. Source: Reuters Note: If you did not take advantage of the historically low rates last year to refinance–today is your second chance. Call us to find out how much you can save.

Housing’s troubles may have a silver lining. If you’re a homeowner, the steep fall in prices is calamitous. But if you’re a future buyer, it’s a godsend. What we’re seeing is a massive wealth transfer from today’s older homeowners to tomorrow’s younger homeowners. From year-end 2006 to 2010, housing values fell $6.3 trillion, reports the Federal Reserve. Assuming there’s no sharp rebound in prices — a good bet — that’s $6.3 trillion the young won’t pay. Up to a point, the lower home prices merely deflate the artificial “bubble.” But there’s evidence that the declines transcend that. The National Association of Realtors routinely publishes a housing “affordability” index, which judges the ability of median families to buy the median-price home at prevailing rates. By this measure, existing homes are the most affordable since the index started in 1970. Young buyers “will be able to enter the housing market at bargain prices,” argues NAR economist Lawrence Yun. When home prices again rise, increases will parallel income gains, meaning that the relative burden of housing costs will remain roughly stable, Yun says. He expects only modest increases in rates. Crises pass and have unintended consequences. The young just might catch a much-needed break from this one. Source: The Washington Post

Banks that spend the extra cash to rehab a foreclosed or REO property stand to sell the property much faster than a non-rehabbed REO, according to a new study by Field Asset Services Inc., a property preservation and REO asset management company. For the last two years, the company has analyzed the number of days on market for remodeled foreclosure or REO properties versus those that are not remodeled. In reviewing 17,252 properties across 13 states, researchers found that the average days on the market for REO properties that were not rehabbed was 222.8 days. On the other hand, properties that were rehabbed sold, on average, in 69.8 days. “When a home looks better, it sells faster,” Javier Zuluaga, director of sales and marketing for Home Repairs and Remodeling (HR&R) LLC in Tempe, Ariz., told Inman News. However, the rapid number of foreclosures may be making it difficult for banks to keep up with the pace to do fix ups, which once were more prevalent, says Zuluaga. “Sometime around 2009, the banks simply said, ‘We are not going to put all this money into it. We are just going to get the properties cleaned up and if it is missing cabinets, it is missing cabinets–that’s just the way it is.” Source: Inman News

If you plan to live out your retirement years in your own home, adding universal design features will make aging in place safer and more comfortable. And if you should later sell the house, you’ll find that buyers appreciate how these upgrades anticipate their future needs. Unlike home improvements designed to make an immediate impression, universal design additions with the most sales appeal are those that go unnoticed until you point them out. “The beauty of universal design is when you’re able to incorporate something that looks great and doesn’t jump out at you,” says Paul Sullivan, a remodeling contractor in Newton, Mass. In other words, says Armand Christopher, a Realtor who is designated a Seniors Real Estate Specialist: “You don’t put in hospital-grade grab bars in a bathroom when you are remodeling.” Fortunately, you don’t have to settle for the institutional look. From ergonomically designed faucet handles to skid-free flooring, today’s universal design products are stylish and subtle. Financing options include home equity loans and reverse mortgages. The best time to add aging-in-place upgrades to your home is before you need them, says Pat Rowen, an interior designer and Certified Aging in Place Specialist in Hillsdale, Mich. Rowen had to tackle a rush job when a client in his 80s fell and broke his hip just before Christmas, and she scrambled to track down materials and workers to do the needed remodel. She says the experience underscored the importance of planning ahead. “If you have to do it under the gun at Christmastime, and you know that your husband is coming home in two weeks and you have a bathtub that he can’t get into — that’s not the time to do the remodeling,” Rowen says. Source: BankRate.com

Despite the Great Recession, which wiped out $15.5 trillion in household wealth in the United States alone, the number of millionaires in this country and abroad will grow rapidly over the next decade, according to a recent report. In the U.S., the total number of families with a net worth of over $1 million will double by 2020, according to the report by the Deloitte Center for Financial Services. With 10.5 million, the U.S. has — by far — the greatest number of millionaire households in the world, despite the financial crisis and ensuing recession which knocked more than 3 million millionaire families off the map between 2006 and 2008. The number of millionaire households is expected return to pre-crisis levels by 2015 and reach 20.6 million in 2020, maintaining the U.S.’s position in the top spot. By then, 43% of the world’s wealth held by millionaire households will be in the U.S., up slightly from 42% this year, the report said. Japan is expected to rank a distant second, with 8.6 million millionaire households in 2020 and 9% of the world’s wealth. China is projected to rank seventh, with 2.5 million millionaire households in 2020 and 4% of the world’s wealth. Source: CNN/Money

The national office sector rebounded during the first quarter on improved fundamentals, said Cassidy Turley, Washington, D.C. While 52 of 82 markets registered increases in net absorption during the first quarter, net demand registered at 7.5 million square feet, Cassidy Turley said in its First Quarter Office Trends Report. U.S. office rents increased five cents on average to $21.36 per square foot and vacancy rates fell 30 basis points from the previous quarter to 16.5 percent. “This is the first report in [more than] two years that shows all of the metrics used to measure the health of the U.S. office sector are strengthening,” said Kevin Thorpe, chief economist at Cassidy Turley. “We need many more reports similar to this one before the recovery will be completed, but clearly, the office sector is heading in the right direction.” From data analysis by Real Capital Analytics, New York, Cassidy Turley reported office sales volume increased 180 percent during the first two months this year from the same time in 2010. Cap rates also dropped 150 basis points from their peak, settling between 7.2 percent and 7.4 percent. MBAA.org

The bright spot in a drab employment picture is that workers have been stretched so thin during the past couple years that companies are going to have to (gasp!) hire more. You may be understandably suspicious. Corporate America has been raking in massive profits – they flooded in at a record $1.68 trillion annual rate in the fourth quarter of 2010 – with unemployment near 9%. Initial jobless claims are rising again after falling for much of 2010, yet the stock market is just short of record levels. Do companies really want to change this picture by hiring people and paying them and stuff? The answer is they may have no alternative. The hiring picture is improving largely because the productivity gains that drove the profit rebound and the rip-roaring stock market rally of the past two years are petering out. Hourly economic output rose at a 1.3% clip over the past 12 months, says Paul Ashworth of Capital Economics – down from 6.7% in the previous year. While falling productivity growth is bad over a long span, because it means less wealth creation and slower economic expansion, in the early stages of a recovery it is unabashedly good news for workers — something that has been in short supply of late. A productivity slowdown shows employers have harvested the low-hanging fruit of wage and employment cutbacks — leaving those that aim to grow through the next cycle with little choice but to start staffing up. “We suspect that firms just ran out of potential productivity-enhancing measures,” Ashworth writes in a note to clients. During the 2007-2009 downturn, companies not only shed jobs by the millions but also put the screws to workers who remained, forcing them to work harder, give ground on raises and benefits and, worst of all, stop mocking the boss’ tie. Source: Fortune

The Obama administration is looking to get rid of 14,000 surplus properties that the federal government owns around the country and is costing taxpayers money to maintain. The surplus properties include everything from unused roads and empty lots to warehouses and office buildings. “The government can no longer foot the bill for vacant buildings,” says Rep. Jason Chaffetz, R-Utah, who also has authored a bill to quickly dispose of the government’s surplus property, but without using a special commission as the Obama administration has proposed. The federal government spent about $134 million to maintain surplus buildings in 2009. The Obama administration says that improving the government’s management of surplus properties stands to save taxpayers $15 billion over several years. The Obama administration is proposing a special commission be used to handle the surplus property in order to try to sidestep problems that have hindered the sale of these properties in the past. The presidentially-appointed, seven-member Civilian Property Realignment Board would evaluate surplus federal properties and make recommendations to “significantly reduce” the government’s real estate inventory, which ultimately would be voted upon by Congress. The government believes there are some 12,000 surplus federal properties within the U.S. and about 2,000 overseas. The commission would not deal with military, national security sites, national parks, or wildlife refuges. Source: McClatchy Newspapers

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